Delhi-based low-cost airline SpiceJet reported a net loss of Rs-8.378 million ($-103.1 million) or Rs-5.777 million ($-71.1 million) excluding foreign exchange adjustments for its second quarter ending September 30. This compares to a net loss of Rs-5.617 million ($-69.1 million) or Rs-5.687 million ($-70 million) excluding the forex adjustment last year. Q2 loss confirms SpiceJet’s fragile balance sheet.
SpiceJet’s third quarter was hit by record-high fuel prices, a depreciating rupee, and a traditionally weak quarter. Earlier this month, the other listed low-cost airline in India, IndiGo, said that if the foreign exchange losses for its second quarter of Rs-12.015 million or $-146 million were included, then its net losses stood at Rs-15.833 million ($-192.4 million) for the airline.
SpiceJet reported total revenues of Rs 21.047 million ($259.1 million) against Rs 15.387 million ($189.4 million) in the same quarter of FY2021-2022. For the same comparative period, operating expenses were Rs 29.426 million ($362.3 million) as against Rs 21.004 million ($258.6 million) in the previous period.
The carrier said that the average price increase of fuel was 87 percent. At the same time, India saw the highest depreciation of the rupee at ten percent against the US dollar as among the key highlights for the quarter ending September of its financial year 2022-2023.
SpiceJet’s statement points out that SpiceXpress reported a profit of Rs 210 million ($ 2.58 million) in Q2 FY2023, adding that cargo hive-off is to be completed in Q3. The airline also operates a dedicated air cargo service under the brand name SpiceXpress.
“A near to-normal business environment and an upturn in business and leisure travel coupled with government aid are giving hope to positivity. The high fuel prices and depreciating rupee continue to be a downer for the industry but the overall outlook for the sector remains positive. Having completed a series of settlements with most of our major partners and the upcoming hive-off of our cargo and logistics arm, we expect significant improvements in our operating environment and are well-placed to script a new phase of accelerated growth and meet the resurgent demand from passenger and cargo customers,” Ajay Singh, Chairman, and Managing Director SpiceJet said.
Eroded fundamentals
Commenting on the latest results, Satyendra Pandey, Managing Partner of aviation advisory firm AT-TV, said the results continue to reflect a business with significantly eroded fundamentals and an extremely fragile balance sheet. “Net cash flow from operations is down to Rs 3.050 million ($ 37.5 million) and all of the revenues of Rs 200- 220 million ($2.46-$2-7 million) a day are taken up in keeping the airline afloat. Even so, the airline is bleeding Rs 60-70 million ($7.33-$8.61 million) a day, not accounting for foreign exchange fluctuations.”
“Cash continues to be an issue and the airline was carrying cash and equivalents of only around Rs 600 million ($ 7.38 million) for an operation that spans around fifty aircraft. The quarter saw several events including curtailing of flights by the regulator, repossession of aircraft, and the inability to enter sale-and-leaseback transactions,” Pandey adds.
Pandey is of the view that financial challenges aside, the airline also faces a talent crunch which is a double-edged sword. “Because in such a situation it becomes more expensive to attract and retain talent. The attrition challenge is reflected in the stock options compensation granted to employees where 56.500 additional options were granted during the quarter,” he points out.
He adds that the results clearly point to the fact that an equity infusion is the need of the hour. “Failing that the airline will continue to operate in its current form. The much-spoken-about Emergency Credit Line Guarantee Scheme (which was financial help given by the government with the promoters also chipping in) is additional debt on the books and at some point will have to be repaid. Add to that a rising interest rate environment where even AAA-rated companies are finding their financing costs rising and SpiceJet is almost certainly looking at financing costs in the double digits,” Pandey says.
Safety concerns
SpiceJet has been facing severe headwinds in the recent past, including the Directorate General of Civil Aviation (DGCA) restricting the carrier to limit to “50 percent the number of departures approved under Summer Schedule 2022 for a period of eight weeks,” this year. The 50 percent ban was later extended. The DGCA action follows reported incidents on aircraft operated between April 1 and July 5, during which it was observed that “on a number of occasions, the aircraft either turned back to its originating station or continued landing to the destination with degraded safety margins.”
The order adds, “there is poor internal safety oversight and inadequate maintenance actions, which have resulted in degradation of the safety margins.” On May 1, about forty passengers and crew on a flight from Mumbai to Durgapur suffered minor injuries due to a turbulent landing. Two days later, an engine failure on a SpiceJet flight did not allow it to take off from Mumbai and, on the same day, a flight returned to Chennai after an engine shutdown. On June 19, a Patna-Delhi flight returned to Patna as the engine caught fire after a bird strike. And, on July 5, a Delhi-Dubai flight had to land in Karachi (Pakistan) after its fuel indicator malfunctioned.
For the winter schedule, which came into effect at the end of October, the ban was lifted. This saw SpiceJet being allowed to operate 3.193 departures a week up from 2.995 weekly departures during Winter 2021, an increase of 6.6 percent. The airline also announced that it is increasing the salaries of its pilots’ from this November.
